ACC 2112. COST MANAGEMENT. SEM 22023/2022 FINAL ASSESSMENT. Question 14) Deena Industries manufactures and sells small pumps made to customer specifications. It has tw9 service departments and two production departments. Data ‘on 2022 operations fellow: Service Departments Production Department item | Maintenance | Power Casting [Assembly Supportcosts | _RNTSOOO0 | —RMISOGG | RMISOA00 | RNATO;000 Machine 0 ‘0,000 ‘Bop S00 hours Riioware “mp0 0 200,000 ‘60,000 hows Direct labour 0 o To000 00 hours Management allocates maintenance department costs using, machine hours, and power department costs using kilowatt hours. Separate cost driver rates are {etertined on the basis of machine hours forthe casting department and on the basis ff direct labour hours for the assembly department. It takes 1 machine hour to ‘manufactate a pump in the casting department an 05 Iabour hours to assemble a pump inthe assembly department, Dect labour and material costs amount to RM2 per pump. ‘A prospective customer has requested a bid on a 2 year conteact to purchase 1/000 pumps every month. Deena Indstries has policy of adding a25% markup tothe full ‘amufactuting cost to cetermine the bi, Required: 1. Whats the bid price when: i. direct method suse? 8. shesoquential mod tates by alloating maintnancedepertnent cote (@ marks) 2. Based on requirement, provide your comment, on the results, (marks)TTeporiental Alea = Mathod Total = casting Assert 30000 10500 ‘Maintenance Dept -AM750,000 500000 | soooo| | [iofizapanursoe |_| aopano}xn7so« Tower Dept AaS0,008 250000 00000 | _pawjasapcmneasoe [|Top aso Total 900000. seonnn Departmental Rates oor 000 sp760.000 3, 933 permathioa hour | | por det abou hour Babies ie ‘Diet inkoor& materia ct 32 7 as [Tascineorstomas —| f 49 [on casting Dept | (Assembly ‘467 [0 det about nous x aN 33 as aad 15 nano 1138 Pie per unt 39.90% “Tota id pie fr 1000 pape 38500 [ [90 xn Bd pie lor the 2 year cortact s437 600)” | xe9 00 x9012 |S TH Sequsnl Methog ‘Mainnsnes [Power Cosi Assent Petorad Ry RM750,000| ANAS eiso00 || 110.000 Tainterance et ‘70,000, 250,000 300,000 sopo00| | _1s0c00 (won = | 50K ao/200 xaarsox |_| (0/200) 750K Fer Sept maa 00 T0000 | ‘16667 | | 333333 [BSOREEyRNSOK | (oy3601 appro Tova 35560 soa {7 Deport Rates e780 000 53, 333/60.000| 10 29] \ permaching hour or diet abour hour id pce __|nne Diet abou? & alors cast 3 - (OM Casting Dept asf machine hour eOaS (OH Asembiy 4967/03 dea lobou hous aa8* | 78 BidSK marly 134 tid Pree so Total is Pree or 1000 pumps tse,720| _58.72»1000 - PTove i pict cj cond susan“ ys ‘Comments marks “The bid prices computed using different allocation method are different because under the direct method, the services provided by the support department to other Support department are not recognized. In this ease the maintenance dept costs are I allocated directly to exiting and assembly dept without recognizing the services provided to the power Jept. And also the power dept costs are allocated directly to Easting and assembly dept without recognizing the services provided 10 the maintenance dept ‘While wnder the sequential method, the maintenance dept costs are allocated to ‘casting and assembly dept as well ast the power dept. However the power deptcosts © gq fre allocated directly ( casting and assembly dept only without recognizing the Services provided to the maintenance dept. Under sequential method, the services provided by the support dept tothe other support depts are partially recogoized. ‘In an oi mill of Purname Refinery Sdn. Bhd, fou products emerge from a refining ‘process, The total costef input during the quarter ending March 2022 is RM 148,000 “The output, sales and additional processing costs are as follows: Product] Outpatin | Additonal” processing cost after | Sales Value (RM) Lites split.off point (RM) ao) #00 172,500 [000 300 15000 | 2000 Nir 00 3 [x00 500 Ban Required Calculate the cost ofeach product under the following methods i. Physical Unit/ Weight Method li, _ NetRealizable Value Method Why the allocation of yunt costs resulted indifferent values under the two metals? Explain (12.macks)Rounding ewvors one aceeptable Phys! Uniywelght Mathod out ‘009 anbD «2000 * 5 iy HM, Mp ‘Atccaonofoint Casts «65778, 32888 at mmegon ‘Net Realable Value Method eg sta soles Voe Team —is000 sao as60 238500 ess Adina Processing Cost 300 9000 ° 1500 Sry nw iso 600 6mm #3500. 185000 . m me om Gen) Moan oct veto bo amnion suse ‘he physical ut weight metod ony consers he voame when allocating the joint costs, Itignores the seling price ofthe joint products @m) Howover the net eliza vue metho considers the voume, the sling price as trllaa the separable st ofthe pint products Hence giving ferent allocation ‘fin cots (Total: 25 marks) Question Two lectronica Enterprise produces variety of electronic products. One ofits plants proxluces two laser printers, Supreme and Speedy. AL the beginning, of 2022, the following data were prepared for ths plant ‘Supreme [Speedy ‘Guan ots) 5000. Sellns Price RMA75, nit prime cost RM 180 Unit overhead cost RM20_ “The unit overhead cost is calculated using the predetermined overhead application rate based on the direc labour hours.‘Upon examining the deta the marketing, manager was particularly impressed with the per unit profitability ofthe Supreme printer and suggested that moreemphasis be placed on prodcing and seling this product. The plant supervisor objected to this Suategy, arguing that the Supreme model required a very delicate manufacturing process. The supervisor believed thatthe cost ofthe Supreme printer was likely tobe ‘much higher than reposted “The controller suggest an activity based costing system and provides the following, ‘budget lata pertaining to the period: ‘Activity Consuimption Overhead ‘Coat Driver Activity | Cost Driver ate Supreme | __ Speedy | Setups No, o' setups | RM 2800, 200) 100. | “Machine costs [Machine hours | RM 100 00,000 o.000, Engineering | Engineering, RM a0 45,000 120,000 hours Packing Packing orders | RMU ‘Soon 00,000 Required: 1. Using the projected! data based on the firm's current costing system, calculate gross profit per unit and gross profit percentage for ench product. ea ee “Unit Prime Cost " a0 7 art | ‘Unit Overhead Cost 207 1536" 2&) ‘ess Cost Per Unit 2000" 263.6 En EB ‘overhead cost por unitfor each product are determine gross profit per unit tnd gross profit percentage for each product. (marks)‘overhead ty Ore canoer faaten”" | supreme] on | speedy | om seuge _|nestieux |""aazo0|“""St0| _ewssos00)- "300 | nwo tative [ta [tine tous | _nutco| 1000 | nero nen 00020300 | io. 00 oo tngoerg | wae wws0| sso] wsemourf 20000 | ema tg [Facing [two [soem |-nvs00900077300000 [Rio ara avi a Dunendpr Ua me mas, Cont gvan sore peut Sh Pine Cost ho (at vera ost nz “otc pero 2 seg ce me 12.6) tescon Perk a= £ Gros Pt Pr Ul a or sage nw 8, Based on your results under reguirement 1 and 2, evaluate the suggestion ‘ofthe marketing manager to emphasize the Supreme model (marks) Based! on the ABC, team be seen that the gross profitof Supreme ist as high as previously reported under the traltiona costing system. supreme Speesy ‘6.ross Prof Pe Ui funder eld) 5% x Wross Profit Pe Vie (under ABC) «59% mam [As rightly said by the plant supervisor, due to the complexity of the Supreme production, profits of Supreme are in fact much lower than the profits of Speedy. ‘ABC is able to capture the nature ofthe production process and reflect tin the cost thus giving a botter cost computation, The suggestion of marketing manager lo focus on Suprome model should NOT be taken up.tnstead the company should focus on Speedy madel, sit gives a better profits. fons on Spey4. Briefly describe what {8 meant by customer profitability analysis and ‘explain how Electronic could use the tool to improve its profitability (6 marks) ‘The need for customer profitability analysis arises when a company such as _Becttonien finds tha while its products ae profitable, some major customers have Decome unprofitable. It applies the concept of ABC to determine how serving, particular customers causes activities to be performed and costs to be incurred Imorder to do this analysis, letronica must havea system jn place that allows it to identify which custoniers are using cistomer support services and how frequently they do 9; how much time must the marketing deparlnent spengLon a ‘ustomer fo make a sale and provide ongoing service, CPA hetps management se the overall financial picture ofeach customer aryl how ‘management can use this information to help make a strategic plan forthe future Should Electronica get rd of the unprofitable customer? It is possible that this feustomer should be kept today in order to maintain the potential for future profitability (Totals 25 masks) ‘Question Three “The following informaton shows last year’s quality related costs forthe Excel Enterprise EM AMOUNT (RN) Quality engineering 500,00 ‘Warranty claims. 2345,000 ‘Product Hablty laws 4300,000, Research of 75,000 Maintenance of test equipment - 50000 | Returned products 3,200,000, Rework costs 1,200,100, 125,000 7,000,000 Inspection and testing of incomming materials 400,000 Repair costs in the fie 350,000 ‘Statistical promis control 50,000 Product recalls, | 2.00000 —] Waste 700,000 Net cost of rap —_ 35,00, Product quality audits 475,000 [Downtime cue to defects 125,000 ‘Supplier certification 90,000,‘Total sales fr the yer were RM100,000,000. Required: 1. Prepare cost of quality report grouping costs into prevention, appraisal, internal failure and external failure. Also show costs asa percent of sales. (6 marks) (0) cost of tty eport mm Ta * ravnton sat Cualty Engineering 00,000 esearch fester neds 75000 ‘uatty waitng 7 125,000 Ssipplrcerifeation 2 000 190.000 7 0.79% ost cost Maintenance oft equipment 20,000 Process conv montring 000,000 Inspection and testing of ecming mates “400,000 Statscal proces onl 250000 Product sity ust ~ ‘75,000 2.418000 724887 nea fare Ware 7 700,000 Th et oostof scrap ~ 535,000 u Revorkcosts 1200000 Downtine due todetets 125,000 265000072865 ‘sora fture wean ms 7 2.5000 Produc att lawsuits “~ 500,000 Returned products 1120000 Aepalrcosti the fed 7 'so,000 Product ees > 2.000200 ZY vosaoion 10895, 000~1o.20% Total aes 1o00%m0 16826 2 Based on your results in requirement 1, inlerpretshe data and make recommendations to Feel Enterprise (marks) ‘The quality cost yeport shows a very high incurrence of external failure costs. Itmakes up an approximately 65% (RN0,895,000/RM 16,820.00) of g 4 ©the quality casts incursed by the company. The company might be losing, Secu the quality cents Have ben spent fo ecify the gual sus detected by the external parties such ascustaners. Instead of spending on Setivities which woukl add value tthe company, they are spending. on internal faire costs and external failure costs which make up 13.56% of total sales For every RMI sales, the company isspending KMIS.56 (1000 The quality cost report also shows that the company had spent very rinimal of prevention and appraisal activites. Out of RMIO0 sales, the ompany sony spending RMB.27 (200+1.27) or prevention nd appraisal setivtes, Th ort to yrevent further issue on loss of trust due to quality issue its recommended that Excel should gow refocus its activities t prevention and appraisal, By doing that, the company should be able to reduce the internal and externa failure costs 3, Managersoflkce! Enterprise concemed! with improving quality sometimes have a difficulty in managing the four types of quality costs. Advise the managers or how best to manage the costs of quality. Which types of costs should they focus, and which they shoulda’t Explain (marks) ‘Excel should examine its current practices on quality management and also evaluate how its employees view the concept of quality. Spending :more on prevention and appraisal costs could potentially lead to higher sales as the cuality culture is being stressed among the employees in the ‘organisation However, if managers are not concerned about prevention and appraisi activites, itcould potentially lead to higher internal and external costs, The company could be losing sales due to quality issues (Total: 25 marl Question Four 'A pavtal standard cost rl forthe single product produced by Mayu Sen Bhd is ven below: + Direct materials:3 pounds @ RM per pound + Direct labor: ? hours @ 2 per hour Last period, the company produced 4000 units of product. Cost and other data associated with this production are given below: Direct materials purchased and used, at cost RM108,320 q ©Ditect labour cost incurred (10,400 hours) RMI20,640 Materials price variance M2520 Unfavourable Labour efficiency variance RMG,800 Unfavorable ‘otal labour variance RM640 Unfavorable Required: 1. Determine the number of pounds of direct materials putchased and used uring the pesiod, (@ marks) 2 Determine te materals quantity variance (@ marks) 3, Determine the standard direct labour rate per direct labour ho (6 marks) 4, Determine the standard hous allowed for the production ofthe period, (4 marks) 5, List TWO recsons fora materials unfavour reasons fr sbour unfavourable variance. variance and another TWO (4 marks) 6, Whataze themain uses of variances analysisin an organization? Hove does ‘variance anslysis help in continuous improvement? Comment on the implication cf sing variance as the only tool to evaluate the performance ‘of managers from an Islamic perspective. (nas) (Tor 35 marks) ENDOF QUISTIONS Soltions Question 1. Canto mateviahspuncioed and une abeatt eonan.a02 Dadictnvounblepicevaiane asm EoD Materials used at standard price R100 800~ ‘The number of pounds of direct materials purchased and used during the period. ~ RMA RMS pou = 249 pos ("OF Compactor PQ GaPgh) = 2570 2. Materials quantity variance = SP (AQ 60) PR AP = PSP * AFPO 103,320 - A x te AFP to Beg 2 195390 -2890 2 ta,c00 pomeldor computa " >) PCA - 5) Ye = (mee (K400)) enone rn0ih-nmasare — | 7 Cp. coe - 12608) “soma poundsit= 2000 pounds | * AA, Bv0 2. If the tot) labour vasiance is RM640 U, and ifthe labour efficiency variance is RMIASO0W, then the Iabour rate variance must be RMA,14)#. Therefore: AN (AR~SR) = Labour rate variance“ 0 Afoqnmnroe— 50 ROU 160r RM120,640 ~ 10,400 SR=-RMé,160, fo 30,400 SR = RMI24,800, = sR=RM2 7 *RM120,640 + 10,400 hours = RMI1.60, 4. SR (AH ~ SH) = Labour efficiency: variance” raft cnsh-sufe b a yti24800~ RMS aD Ge) RMI2SH = RM120,000 SH=10000/ 5. List TWO reasons fora materials unfavourable variance and another TWO reasons {for labour unfavourable variance. Some pssile ess for ax unfavorable mater variance ae 1 Lawgultyof ae meters 4 Ringo of mats du to shortage of supply i Rasher te purchase a material And otter scepabl avers ‘Some possible reasons for an unfavorable dreet manufacturing labor efficiency J. the ising and use of underskiled workers; Ji, inelficient schedaling of work 3 thatthe workforce was nat optimally am cccupied; {ii poor maintenance of machines resulting ina high proportion of non-value added labor;iv, unsealistic time standards. Fach of these facors would result in actual direct manufacturing labor-hours| being higher than indicated by the standart work rte 6, What are the main uses of variances analysis in an organization? Variances can help to identify deviations from planned performance an be used for evaluating performance and to motivate managers. Variances can help managers with thei planning and contol fanctions as well with their strategy settings. For example, sometimes large variares can suggest thatthe company should considera change in strategy or a change in standard setting and contol How does variance analysis help in continuous improvement? Variance analysis, by providing information about actual performance relative to standards, can form the bass of continuous operational improvement. The underlying, ‘ses of unfavorable variances are identified andl corrective action taken where possible, Favorable variances can also provide information if the organization can identity why a favorable variance occurred, Steps can often be taken to replicate those conditions more offen, As the easier changes are made, and perhaps some standards tightened, the harder isues will be revealed for the organization to act on—this i continous improvement ‘Comment on the impication of using variance as the only tool to evaluate the performance of managers from an Islamic perspective, Variance analysis does indicate report on deviations from the planned activities, Howover excessive use of variance as the only tool to motivate and measure the performance managers may result in dysfunctional behaviour. There are instances that events are beyond the control ofthe managers. Events such as labour strike, and sudden increase in material prices de to unforeseen circumstance may result it ‘unfavourable variances. From an Islamic perspective, managers should be given the ‘opportunity to justify the resulls of the actions and be given enough room for improvement and not Wing penalised for events that are not within their cont fa & ©)